Senate

Revised Explanatory Memorandum

(Circulated by the authority of the Minister for Financial Services and Superannuation, the Hon Bill Shorten MP)

Chapter 6 - Other measures and consequential amendments

Outline of chapter

6.1 This Chapter outlines the remaining changes contained in the Bill. All legislative references in this chapter are to the SIS Act unless otherwise stated.

Context of amendments

6.2 The Review recommended the removal of restrictions on director voting (recommendation 2.8) and clarifying the definition of 'superannuation contribution' in the Corporations Act (recommendation 6.12).

6.3 As this Bill is the fourth tranche of legislation implementing the MySuper and governance elements of the Stronger Super reforms, it also includes changes to reflect requirements that will now be covered by APRA's prudential standards, as well as other consequential amendments.

6.4 Additional amendments to MySuper measures are also necessary following further consultation, to clarify aspects of the legislation, and to ensure the legislation functions as intended. These amendments relate to the direction of contributions requirements, the collection and disclosure of information, the MySuper administration fee rules and the characteristics of a MySuper product.

6.5 Some consequential amendments are also necessary due to the renaming of Fair Work Australia to the Fair Work Commission.

Summary of new law

6.6 The Bill ensures that directors of corporate trustees (and individual trustees) are only prohibited from voting on any company business in limited circumstances, including where a conflict of interest arises. The Bill also clarifies the definition of 'superannuation contribution' to ensure defined benefits are treated consistently with superannuation contributions in the event of insolvency.

6.7 It also makes consequential amendments, including in relation to acting trustees, administration fee rules, fitness and propriety and auditor and actuary requirements, product dashboard requirements, portfolio holdings disclosure, the characteristics of a MySuper product, the First Home Saver Accounts Act 2008 (FHSA Act), the Corporations Act and the Fair Work Australia Act 2009 .

Comparison of key features of new law and current law

Detailed explanation of new law

Removing voting limitations

6.8 The Act will be amended to ensure directors of corporate trustees (and individual trustees) are only prohibited from voting on fund business when the prohibition falls within a relevant exception, including where it relates to a conflict of interest.

6.9 These amendments provide that a provision in the governing rules of an RSE is void to the extent that it precludes a director of a corporate trustee or an individual trustee from voting on a matter relating to the fund. [Schedule 1, item 73, subsections 68C(1) and (2) and 68D(1) and (2)]

6.10 Exceptions to this general rule exist where the person has a material personal interest or a conflict of duty or interest. [Schedule 1, item 73, subsections 68C(3) and 68D(3)]

6.11 The changes do not over-ride the requirements in Part 9 of the Act. [Schedule 1, item 73, paragraphs 68C(3)(e) and 68D(3)(e)]

6.12 The amendments apply from 1 July 2013.

Definition of superannuation contribution'

6.13 The definition of 'superannuation contribution' in the Corporations Act is clarified to ensure it includes defined benefits. [Schedule 1, item 2, subsection 556(2)]

6.14 Both funds and schemes including defined benefits are covered in the definition of 'superannuation contribution' at subsection 211(3) of the Corporations Act. [Schedule 1, item 1, paragraph 211(3)(a)]

6.15 The Bill makes the same amendment to paragraph 596AA(2)(b) to update the reference to include fund or scheme, including defined benefits. [Schedule 1, item 3, paragraph 596AA(2)(b)]

6.16 The amendments apply to contributions paid or payable on or after 1 July 2013. [Schedule 1, item 12, section 1538A]

MySuper Administration fee cap

6.17 The MySuper fee rules in section 29VA of the SIS Act require that where a fee is charged, in whole or in part, as a percentage of each member's account balance, all members of the MySuper product must be charged the same percentage.

6.18 New section 29VE to be inserted in the SIS Act allows trustees to have a single cap on percentage based administration fees. The amount of the administration fee can be capped at a specified amount, and must be the same for all members of that MySuper product. [Schedule 1, item 42B , section 29VE  ]

Product Dashboard

6.19 The Further MySuper and Transparency Measures Act inserted a requirement into the Corporations Act for trustees of RSEs to make a product dashboard publicly available on their fund's website in respect of each of their MySuper products, and each investment option for a choice product.

6.20 The product dashboard provisions are being amended to ensure the data published by trustees provides members with meaningful and useful information that can be easily understood, and to allow comparison of a fund's performance across different products.

6.21 Paragraph 1017BA(1)(c) of the Corporations Act is changed to remove the obligation on trustees to update information set out in each product dashboard about fees and other costs within 14 days after the end of each quarter. This information will now need to be updated within 14 days after the end of a period to be prescribed in the regulations. [Schedule 1, item 10A, paragraph 1017BA(1)(c)]

6.22 Subsections 1017BA(2) and (3) of the Corporations Act, which set out the requirements for a product dashboard for a MySuper product or an investment option of a choice product, will be repealed and replaced with subsections which provide greater flexibility around the key information to be disclosed. The new subsections identify the key product dashboard information in general terms, with detail of the requirements (for example, how the information is to be worked out, and any other information that is required), able to be prescribed in the regulations. [Schedule 1, items 10B and 10C, subsections 1017BA(2) and (3)]

6.23 Rather than merely requiring a product dashboard to show the number of times the return target for the product or investment option has been achieved, the changes to subsections 1017BA(2) and (3) will allow for the reporting of information on the product's (or option's) annual net return, the moving average return achieved, and the moving average return target. This will address concerns raised by industry that the initial requirement was too narrow and did not provide an accurate representation of a product's historical performance.

6.24 The changes to subsections 1017BA(2) and (3) also provide flexibility around the reporting of average fees and costs. Regulations will be able to be made requiring the reporting of average fees and costs for a representative member and on a dollar basis, rather than just as a percentage.

6.25 The requirement to include a statement in the product dashboard about the liquidity of member's investments in the relevant product or investment option is being removed. This will allow time for further consultation to be undertaken to develop a suitable liquidity metric. Once a suitable measure has been developed, a liquidity statement will be able to be added back into the product dashboard by way of regulation.

6.26 New paragraph 1017BA(4A) is to be inserted into the Corporations Act. This paragraph introduces a regulation making power for the specific purpose of clarifying the effect of the 'single asset investment' exemption from the product dashboard requirements in paragraph 1017BA(4)(c). [Schedule 1, item 10D, subsection 1017BA(4A)]

6.27 As the amendments provide for relevant time periods to be prescribed in regulations, the definition of 'quarter' in subsection 1017BA(5) is no longer relevant, and is therefore repealed. [Schedule 1, item 10E, subsection 1017BA(5)]

6.28 These amendments commence on 1 July 2013.

Portfolio Holding Disclosure

6.29 The Further MySuper and Transparency Measures Act inserted a requirement into the Corporations Act for RSEs to make available to the public information relating to their portfolio holdings. The requirement was to apply in relation to the reporting day of 31 December 2013 and later reporting days.

6.30 Section 1540 of the Corporations Act is amended to defer the application of this requirement, so it will now apply in relation to the 30 June 2014 reporting day and later reporting days. This will provide industry with more time to implement the changes required under the new disclosure regime. [Schedule 1, item 12A, section 1540]

6.31 However, there is no impediment to RSEs providing this information earlier if they are able to do so. Provision of this information is important to improving transparency in the superannuation system and RSEs are encouraged to provide the information earlier.

6.32 This amendment commences on 1 July 2013.

MySuper and Choice products

6.33 Section 29TC of the SIS Act sets out the characteristics of a MySuper product. Subsection 29TC(1) is being amended to ensure that no member who holds a MySuper product can be precluded from holding a choice product, and vice versa.

6.34 The amendment will prohibit an RSE licensee from structuring a MySuper product in such a way that it precludes a member from having some of their superannuation in a MySuper product and some in a choice product. [Schedule 1, item39A, paragraphs 29TC(1)(j) and (k)]

6.35 The amendment commence the day after the Bill receives Royal Assent.

Consequential amendments to the First Home Saver Accounts Act 2008

6.36 Consequential amendments are made to the FHSA Act as a result of changes made in the MySuper Core Provisions Act, the Trustee Obligations and Prudential Standards Act and the Further MySuper and Transparency Measures Act.

6.37 Section 18 of the FHSA Act is amended to include a definition of 'responsible officer'. [Schedule 1, item 13, section 18]

6.38 The Bill repeals existing section 93 of the FHSA Act and replaces the existing capital requirements for applicants seeking authorisation as an FHSA provider with a requirement that an applicant satisfy the financial requirements set out in prudential standards under the FHSA Act. The existing capital requirements in the FHSA Act are based on the capital requirements for the trustees of public offer superannuation funds that were repealed by the Trustee Obligations and Prudential Standards Act. [Schedule 1, item 14, section 93]

6.39 The amendment to section 93 of the FHSA Act (item 14 of Schedule 1 to the Bill) applies in relation to: RSE licensees who apply to be authorised as an FHSA provider on or after the day on which that item commences; and RSE licensees that are authorised as FHSA providers, whether before, on or after the day on which that item commences. [Schedule 1, item 125]

6.40 Subsection 114(2) of the FHSA Act is amended to apply the provisions of the SIS Act to persons involved in the management of an FHSA provider in the same way that the SIS Act provisions apply to a responsible officer of an RSE licensee that is a trustee of a public offer superannuation fund. [Schedule 1, item 15, paragraph 114(2)(aa)]

6.41 The amendments to sections 18, 93 and subsection 114(2) of the FHSA Act will commence on 1 July 2013.

6.42 The Bill amends paragraph 115(b) of the FHSA Act and inserts a new paragraph 115(ba) to include Parts 2C, 3A and 3B of the SIS Act, which deal respectively with MySuper products, prudential standards and data and payment regulations and standards, in the list of SIS Act provisions that do not apply for the purposes of the FHSA Act. The inclusion of Parts 3A, 2C and 3B will commence on Royal Assent. [Schedule 1, item 16, paragraph 115(b), item 17, paragraph 115(ba), and item 18, paragraph 115(b)]

6.43 Paragraph 115(d) of the FHSA Act is amended to include subsection 52(7) and section 55B of the SIS Act in the list of SIS Act provisions that do not apply for the purposes of the FHSA Act. Subsection 52(7) of the SIS Act deals with the requirement for superannuation fund trustees to comply with insurance covenants. Section 55B of the SIS Act requires the governing rules of superannuation funds to be read to permit certain elections. The inclusion of subsection 52(7) will commence on 1 July 2013, while the inclusion of section 55B will commence on the later of the day after this Act receives Royal Assent or the day after commencement of the MySuper Core Provisions Act. [Schedule 1, items 19 and 20, paragraph 115(d)]

6.44 The Bill amends paragraph 115(g) of the FHSA Act to include Part 11A of the SIS Act, which deals with fee rules, in the list of SIS Act provisions that do not apply for the purposes of the FHSA Act. The inclusion of Part 11A will commence on the day the Act receives Royal Assent. [Schedule 1, item 21, paragraph 115(g)]

6.45 Paragraph 115(k) of the FHSA Act is amended to include Parts 33 and 34 of the SIS Act, which deal respectively with transitional arrangements for MySuper products and eligible rollover funds, in the list of SIS Act provisions that do not apply for the purposes of the FHSA Act. The inclusion of Part 33 will commence the day after the Act receives Royal Assent. [Schedule 1, items 22 and 23, paragraph 115(k)]

6.46 The Bill amends section 116 of the FHSA Act to treat references to prudential standards in applied provisions of the SIS Act as references to prudential standards made under the FHSA Act. [Schedule 1, item 24, paragraph 116(ba)]

6.47 Subsection 119(3) of the FHSA Act is amended to replace the reference to paragraph 146(1)(d) of the SIS Act with a reference to paragraph 146(d) of the SIS Act. [Schedule 1, item 25, subsection 119(3)]

6.48 The amendments to section 116 and subsection 119(3) of the FHSA Act will commence on the day after this Act receives Royal Assent.

6.49 The Bill repeals subsections 120(2) to 120(7) of the FHSA Act and substitutes a new subsection 120(3). This reflects changes to the investment covenants which superannuation fund trustees must comply with as a result of the Trustee Obligations and Prudential Standards Act. [Schedule 1, item 26, subsection 120(3)]

6.50 The Bill also introduces new subsections 120(2) and (4) of the FHSA Act so that references to a prudent superannuation trustee in paragraph 52(2)(b) of the SIS Act and to a prudent superannuation entity director in paragraph 52A(2)(b) of the SIS Act are references, respectively, to a prudent FHSA provider and a prudent director of an FHSA provider. [Schedule 1, item 26, subsections 120(2) and (4)]

6.51 The amendments to section 120 of the FHSA Act will commence on 1 July 2013.

Consequential amendments - MySuper

6.52 Except where identified separately below, the amendments will apply from the day after Royal Assent.

Acting trustees

6.53 In some cases, APRA may remove or suspend a trustee. Where the suspended or removed trustee was authorised for a particular MySuper fund that authorisation will continue to be effective for the acting trustee. Section 139A facilitates the appointment of acting trustees and allows contributions to continue to be made to the fund. This continuation of authorisation is limited to the time the RSE licensee is the acting trustee. An acting trustee must make the elections in sections 29SAA, 29SAB and 29SAC (which includes the election to transfer accrued default amounts) before it will be able to be appointed as an acting trustee. [Schedule 1, item 110, section 139A]

6.54 This change applies from 1 July 2013.

6.55 New section 139B allows acting trustees to operate eligible roll over funds in place of the trustee who has been removed, where they have made the elections in section 242B (to transfer amounts if authorisation is cancelled) and 242C (not to charge members for payment of conflicted remuneration). [Schedule 1, item 111, section 139B]

6.56 This change applies immediately after the commencement of Schedule 7 to the Further MySuper and Transparency Measures Act.

6.57 Paragraph 29U(2)(b) omits 'the RSE licensee was authorised' to substitute it with 'authority was given'. This amendment recognises that an acting trustee may be appointed to a fund and will have authority to operate a MySuper product in the fund that the previous trustee was authorised for although the acting trustee itself had not received authorisation from APRA. [Schedule 1, item 40, paragraph 29U(2)(b)]

Large employer exemption

6.58 Where a trustee is authorised to offer a tailored MySuper product for employees of a particular employer, contributions made by the employer for those employees must be paid into that tailored MySuper product unless the employee has directed the trustee that all or part of their contributions are to be invested in one or more investment options. A contravention of subsection 29WB(2) is an offence of strict liability.

6.59 This ensures that employees appropriately have their contributions placed in the MySuper product tailored for their benefit, rather than any other MySuper product offered by the trustee. This is to prevent contributions of a sub-set of employees being paid into a tailored MySuper product while other employees of the same employer have their contributions paid into a generic MySuper product. [Schedule 1, item 47, section 29WB]

6.60 Directions given after 31 March 2013 will be required to be given in writing, and a copy of a direction given after this date must also be held by or on behalf of the RSE licensee. [Schedule 1, item 47, subsection 29WB(4)]

6.61 New subsection 29WB(5) will provide a regulation making power to prescribe the circumstances in which a direction, relating to the investment of contributions, given to the trustee of one regulated superannuation fund is to be taken to be a direction given to the trustee of another regulated superannuation fund for the purposes of the relevant sections. [Schedule 1, item 47, subsection 29WB(5)]

6.62 It is intended that the regulations to be made under this subsection will address the circumstances where a member has been moved from one fund to another under a successor fund transfer.

6.63 New subsection 29WB(6) will provide exceptions from the direction of contributions requirements for certain products. The exceptions will apply to the extent the contribution relates to a capital guaranteed life product, risk-only life product, investment account contract or cash investment option that is held by a person as at 31 March 2013. The exception applies to the same categories of products that are excluded from the application of paragraph 20B(3)(c) of the SIS Act (in respect of the definition of accrued default amounts). [Schedule 1, item 47, subsection 29WB(6)] .

6.64 The amendment will ensure that future contributions can continue to be directed to these products; that is, the contributions will not have to be paid into a MySuper product, and the trustee will not have to secure a formal direction from the member to continue the payment of the contributions into the relevant product.

6.65 References are updated to include both sections 29WA and 29WB. [Schedule 1, item 38, paragraph 29T(1)(j) and item 41, paragraph 29U(2)(e)]

Administration fee exemption

6.66 Section 29VB of the SIS Act provides that RSE licencees are able to offer individual employers an arrangement that secures a discounted administration fee for their employees. Subsection 29VA(8) is amended to clarify the application of the fee rules in circumstances where an administration fee exemption for employees of an employer-sponsor applies.

6.67 Where an administration fee exemption for employees of an employer sponsor is relied on for some members, the administration fee charged to the remaining members in the MySuper product (who are not eligible for the administration fee exemption) must satisfy one of the general administration fee rules in subsection (2), (3) or (4) of section 29VA of the SIS Act. [Schedule 1, item 41B, subsection 29VA(8)]

6.68 New paragraph 29VB(1)(aa) is inserted into the SIS Act to prevent different administration fees being charged in relation to a tailored large employer product. For example, the employees of an associate of the large employer will not be able to have a different administration fee to the employees of the large employer. For these MySuper products, all members of the product must be charged the same administration fee. [Schedule 1, item 42, paragraph 29VB(1)(aa)]

6.69 In addition, paragraph 29VB(1)(b) of the SIS Act is amended to clarify that all relevant 'employee members' (that is, members who hold the MySuper product who are employees of the relevant employer-sponsor associate, and relatives or dependants of those employees) must obtain the benefit of any administration fee exemption. [Schedule 1, item 42A, paragraph 29VB(1)(b)]

Obligation to pay contributions to a MySuper product

6.70 The MySuper Core Provisions Act requires an RSE licensee to pay contributions to a MySuper product unless the member has provided an election to the RSE licensee to pay the contributions to a specified choice product. This provision is amended so that an RSE licensee must pay contributions to a MySuper product unless the member has directed the RSE licensee to pay the contributions into one or more specified investment options. Only directions given after 31 March 2013 will be required to be given in writing. A copy of a direction given after 31 March 2013 must also be held by or on behalf of the RSE licensee. [Schedule 1, item 44, paragraph 29WA(1)(c) and item 46, subsection 29WA(4)]

6.71 This amendment clarifies that it is necessary for a member to make a direction to have contributions placed in a particular investment option, and it is not sufficient that the member has joined the fund by selecting one product offered by the fund. This is necessary because a product offered by a superannuation fund is one way in which a member may have joined the fund and does not represent a decision to have contributions made to an investment option other than a MySuper product. However, to be clear, this amendment does not prevent a member providing a direction to pay contributions to a MySuper product.

6.72 Subsection 29WA(2) is amended to omit 'election has been made' to substitute it with 'direction has been given'. [Schedule 1, item 45, subsection 29WA(2)]

6.73 New subsection 29WA(5) will provide a regulation making power to prescribe the circumstances in which a direction, relating to the investment of contributions, given to the trustee of one regulated superannuation fund is to be taken to be a direction given to the trustee of another regulated superannuation fund for the purposes of the relevant sections. [Schedule 1, item 46, subsection 29WA(5)]

6.74 It is intended that the regulations to be made under this subsection will address the circumstances where a member has been moved from one fund to another under a successor fund transfer.

6.75 New subsection 29WA(6) will provide exceptions from the direction of contributions requirements for certain products. The exceptions will apply to the extent the contribution relates to a capital guaranteed life product, risk-only life product, investment account contract or cash investment option that is held by a person as at 31 March 2013. The exception applies to the same categories of products that are excluded from the application of paragraph 20B(3)(c) of the SIS Act (in respect of the definition of accrued default amounts). [Schedule 1, item 46, subsection 29WA(6)] .

6.76 The amendment will ensure that future contributions can continue to be directed to these products; that is, the contributions will not have to be paid into a MySuper product, and the trustee will not have to secure a formal direction from the member to continue the payment of the contributions into the relevant product.

Switching advice

6.77 Section 947D of the Corporations Act requires a provider of financial advice that recommends a client replace a financial product with another financial product to include certain information in their Statement of Advice to their client, including a description of the charges that the client will incur, any benefits they will receive from switching financial products and any other significant consequences for the client (this is referred to as switching advice). [Schedule 1, item 7, subsection 947D(1)]

6.78 A MySuper product and investment options of a choice product can be offered to members within a single financial product. Therefore, subsection 947D(1) of the Corporations Act is amended to ensure that these switching advice requirements apply where advice is given to reduce or dispose of an interest in a MySuper product. [Schedule 1, item 8, section 947D]

6.79 The amendments will apply in relation to personal advice that is given on or after commencement. [Schedule 1, item 12, section 1538B]

Deceased members

6.80 The SIS Act will be amended to permit a member's beneficial interest in the MySuper product to be moved to another class of beneficial interest in the fund where the member has died and the replacement meets any criteria prescribed in the regulations. [Schedule 1, item 39, paragraph 29TC(1)(g)]

6.81 Giving trustees discretion will mean the trustee could put the money into a cash option such as bank deposits or Government bonds. This could be done to reduce risk and preserve the balance accumulated by the member until a beneficiary can be identified and the benefits paid out, which in some cases may take several years.

6.82 The definition of 'MySuper product' is inserted into subsections 947D(5) and 1017B(9). [Schedule 1, item 8, subsection 947D(5) and item 10, subsection 1017B(9)]

6.83 The change in relation to subsection 1017B(9) of the Corporations Act applies immediately after the commencement of item 1A of Schedule 1 to the Superannuation Legislation Amendment (MySuper Core Provisions) Act 2012 .

Validation provision

6.84 A validation provision is being included in the Bill to enable APRA to assess applications for MySuper, taking into account expected compliance with the MySuper provisions in this Bill that relate to: the large employer exemption; deceased members; acting trustees; directions relating to investment options and directors' obligations. The provision will apply from the day this Act receives Royal Assent. [Schedule 1, item 129]

Consequential amendments - fit and proper requirements

6.85 The Trustee Obligations and Prudential Standards Act introduced the power for APRA to make prudential standards.

6.86 APRA's prudential standards, including the proposed fit and proper prudential standard, were released on 15 November 2012. The fit and proper prudential standard will come into effect on 1 July 2013.

6.87 Trustees will be required to ensure that rules relating to the removal of a member representative, and any independent trustees or directors, allow the persons to be removed for failing to meet fitness and propriety criteria set out in the prudential standards. This change is necessary to align the appointment and removal procedures in the Act with the requirements under the fit and proper prudential standard for RSE licensees. [Schedule 1, item 75, sub-subparagraph 107(2)(a)(ii)(DA) and item 76, subparagraph 108(2)(a)(iia)]

6.88 The Court is currently able to take into account fitness and propriety when deciding on disqualification of an individual from being or acting as a trustee or responsible officer listed at subsection 126H(2). The section will be amended to ensure that the Court may give consideration to any criteria for fitness and propriety in the prudential standards which are relevant to the trustee or responsible officer under the prudential standards. [Schedule 1, item 77, subsection 126H(6A)]

6.89 Similarly, the Court is able to take into account fitness and propriety in deciding whether an auditor or actuary should be disqualified under section 130D. The section will be amended to ensure that the Court has power to take into account relevant criteria for fitness and propriety, as well as relevant eligibility criteria, in the prudential standards. [Schedule 1, item 90, subsection 130D(5A)]

6.90 APRA will be able to take into account any criteria for fitness and propriety in the prudential standards that are relevant to the appointment of an auditor or actuary in deciding whether grounds to end appointment are present under paragraph 131AA(2)(b). APRA's prudential standard on fitness and propriety includes the following criteria: competence, character, diligence, experience, honesty, integrity and judgment to perform properly the duties of the responsible person's position. [Schedule 1, item 95, subsection 131AA(2A)]

6.91 Under section 134, if APRA removes an RSE licensee that comprises a group of individuals from being the trustee of a particular RSE, but APRA is satisfied that one or more members of that group are fit and proper, APRA may appoint those fit and proper persons to be acting trustee. Section 134 is amended so that APRA can take into account any relevant criteria for fitness and propriety in the prudential standards when deciding whether to appoint these persons as acting trustee. [Schedule 1, item 108, subsection 134(5)]

6.92 A number of consequential amendments are being made to ensure the Act contains references to the prudential standards. [Schedule 1, item 78, subparagraph 129(1)(a)(i), item 79, paragraph 129(1)(b), item 80, paragraph 130(1)(b), item 81, paragraph 130A(ba), item 82, section 130A, item 83, subparagraphs 130C(1)(a)(i) and (ii), item 84, paragraph 130C(1)(b), item 86, subparagraph 130D(4)(a)(i), item 87, subparagraph 130D(4)(a)(iii), item 89, paragraph 130D(5)(a), item 91, paragraph 130D(6)(a), item 94, paragraph 131AA(2)(c), item 97, subparagraph 131A(1)(a)(i), and item 98, subparagraph 131A(1)(a)(iii)]

6.93 The amendments apply from 1 July 2013.

Consequential amendments - auditors and actuaries

6.94 The Trustee Obligations and Prudential Standards Act introduced the power for APRA to make prudential standards. APRA has made prudential standards dealing with the conduct of audits of RSEs and setting out eligibility requirements for auditors and actuaries of RSEs. As a result of this, a number of consequential amendments to the Act are required.

6.95 APRA's prudential standard on audit and related matters was released on 15 November 2012. The commencement date for this prudential standard will be 1 July 2013.

6.96 In addition to consequential changes as a result of the introduction of prudential standards, many of the amendments relating to auditors and actuaries are largely as a consequence of the separation of the auditor provisions applying to RSEs and SMSFs. This will require changes to definitions in the Act and also amendments to Part 4.

6.97 This Bill amends existing section 35A (accounting records of all regulated superannuation entities, including SMSFs) to substitute a new Division 2 which will comprise new sections 35A, 35AB, 35AC and 35AD. These provisions will only apply to RSEs. The new section 35A will therefore deal with accounting records of RSE licensees only. The SMSF accounting record provisions will be contained in section 35AE in Division 3 and section 35C will be amended so that it only applies to SMSFs. The Bill does not affect the operation of the existing provisions relating to SMSFs. [Schedule 1, item 48, before section 35 and item 49, sections 35A, 35AB, 35AC and 35AD]

6.98 Non-compliance with subsections 35A(1),(2),(4) and (5) will be offences of strict liability. Subsections (1) and (2) are not new strict liability offences as the same treatment is afforded to the existing subsections 35A(1) and (2). A strict liability offence is necessary as the consequences of contravening this requirement significantly impacts APRA's ability to monitor superannuation funds. The consequence of hindered auditing could have a detrimental impact on tracking financial decisions which impacts the fund's members. It is a reasonable expectation that records are kept in an appropriate manner for audit. Subsections (4) and (5) are new strict liability offences. A strict liability offence is necessary for failure of a trustee of an RSE to notify APRA of the address where records are kept as without this information, APRA is unable to verify accounting records. [Schedule 1, item 49, subsection 35A(7)]

6.99 New section 35AB gives auditors of RSEs the power to seek, in writing, documents pertaining to operations of the entity or the RSE licensee of the entity. This new section reflects the existing situation in subsection 35C(2), which will be amended so that it only applies to SMSFs. [Schedule 1, item 49, section 35AB and item 57, subsection 35C(2)]

6.100 Non-compliance with the new subsection 35AB(1) is a strict liability offence, as it is for trustees of RSEs and SMSFs under the current subsection 35C(2). The audit of superannuation entities provides beneficiaries with a level of assurance that the claimed assets will be available to meet their retirement needs. A person who is appointed as an auditor must perform the functions and duties that are set out in the RSE licensee law that are relevant to their employment as an auditor. The auditor has a limited time in which to prepare the audit report. Failure by the trustee to provide necessary records within the time specified in the request would undermine confidence in the audit process. The consequence of hindered auditing could have a detrimental impact on tracking financial decisions which impacts the fund's members, thus it is appropriate that this remain a strict liability offence in section 35AB. [Schedule 1, item 49, subsection 35AB(3)]

6.101 In addition to non-compliance with subsection 35AB(1) being an offence of strict liability, section 126L of the SIS Act will apply to the obligation to provide a document under this section. Section 126L provides that a person is not entitled to refuse to comply with a requirement under the Act to produce books or information on the ground that this might make the person liable to a penalty by way of disqualification, and the material produced may be admissible in disqualification proceedings. This is necessary for the same reason a strict liability offence is necessary: that the required records are essential to the audit process which is to ensure efficient functioning of the superannuation fund in accordance with the law.

6.102 New section 35AC will apply if an auditor of an RSE is required to be appointed under the prudential standards, or is otherwise required or permitted to be appointed or perform a function or duty under the RSE licensee law. The section provides that the auditor must meet eligibility criteria specified in the prudential standards and not have been disqualified. The auditor will be required to perform the functions and duties of an auditor that are set out in the RSE licensee law. The RSE licensee law includes the prudential standards. The section also clarifies that if a person is appointed as an auditor for a specific purpose, then their requirements under RSE licensee law only apply to the person's appointment to the extent that obligations under RSE licensee law are relevant to the specific appointment. APRA's prudential standard on audit sets out relevant functions and duties of auditors. Section 35AC also requires the trustee to make arrangements necessary to enable the auditor to perform their functions and duties and to ensure that they are removed if the trustee becomes aware that the auditor has ceased to meet the relevant eligibility criteria set out in the prudential standards or has been disqualified. [Schedule 1, item 49, section 35AC]

6.103 New section 35AD mirrors section 35AC and requires a person who is appointed as an actuary to perform the functions and duties that are set out in the RSE licensee law that are relevant to their employment as an actuary. This section also allows the separation of auditor duties from actuary duties and consequently, RSEs and SMSFs. [Schedule 1, item 49, section 35AD]

6.104 The Court will have the power to disqualify a person if they acted previously, or are currently acting as the auditor or actuary of an RSE, while knowing that they did not meet the criteria set out in the prudential standards. [Schedule 1, item 88, paragraph 130D(4)(aa)]

6.105 Paragraph 131AA(2)(ba) mirrors the changes at paragraph 130D(4)(aa) relating to what grounds APRA may rely upon for disqualifying an auditor or actuary. If a person has acted or is acting as an auditor or actuary of an RSE and in addition, knew at the time he or she was acting, that they did not meet the relevant eligibility criteria set out in the prudential standards, APRA may give a direction requiring the trustee to end the appointment of the person as an auditor or actuary. [Schedule 1, item 93, paragraph 131AA(2)(ba)]

6.106 If a person has acted or is acting as an auditor or actuary of an RSE and in addition, knew at the time he or she was acting that they did not meet the relevant eligibility criteria set out in the prudential standards, APRA may refer the details of the matter to a professional association. [Schedule 1, item 99, paragraph 131A(1)(aa)]

6.107 Subsection 131A(1A) provides that APRA may consider any criteria for fitness and propriety in the prudential standards when deciding whether to refer details of a matter to a professional association. APRA may consider any criteria for fitness and propriety that are relevant to the auditor or actuary. [Schedule 1, item 101, subsection 131A(1A)]

6.108 Section 36 is repealed as it previously referred to RSEs exclusively. This is no longer necessary given auditors will now need to comply with obligations to provide reports to APRA through prudential standards. Section 35AC now contains a requirement that all auditors comply with the prudential standards, which form part of the RSE law. [Schedule 1, item 61, section 36 and item 49, section 35AC]

6.109 Paragraphs 327(aa) and (b) are repealed as a consequence of the repeal of section 36 and the amendments to section 35C. [Schedule 1, item 115, section 327]

6.110 'Division 3 - Obligations for self managed superannuation funds' and section 35AE are inserted by the Bill. This outlines the type of accounting records SMSFs must keep and mirrors section 35A which now applies only to RSEs. Non-compliance with new section 35AE is not a new strict liability offence as the same treatment continues to apply under section 35A. A strict liability offence is necessary as the consequences of contravening this requirement and hindering auditing could have a detrimental impact on tracking financial decisions. It is a reasonable expectation that records are kept in an appropriate manner for audit. [Schedule 1, item 49, section 35AE and item 49, section 35A]

6.111 The Bill repeals the definition of 'approved auditor' to substitute it with 'superannuation auditor' which covers both an 'RSE auditor' and an 'approved SMSF auditor'. [Schedule 1, items 30, 34 and 37, subsection 10(1)]

6.112 Item 53 omits the term 'approved auditor' and replaces it with 'approved SMSF auditor'. This change in use of terms is due to the repeal of the definition of 'approved auditor' in this Bill and the use of the term 'approved SMSF auditor' in the Superannuation Laws Amendment (Capital Gains Tax Relief and Other Efficiency Measures) Act 2012 (Capital Gains Tax Relief and Other Efficiency Measures Act) which received Royal Assent on 28 November 2012. [Schedule 1, item 53, subsection 35C(1)]

6.113 The term 'approved auditor (other than an approved SMSF auditor) or actuary' is substituted with 'an RSE auditor or a superannuation actuary'. [Schedule 1, item 96, subsection 131A(1)]

6.114 The Bill omits a reference to 'approved auditor' to replace it with 'auditor' at paragraphs 131AA(1)(a), 131AA(2)(a) and subsection 130D(3). This reflects the repeal of the term 'approved auditor' in this Bill. [Schedule 1, item 92, paragraphs 131AA(1)(a) and 131AA(2)(a) and item 85, subsection 130D(3)]

6.115 The Bill repeals the definition of 'actuary' to substitute it with specific definitions of 'RSE actuary' and 'SMSF actuary' and also 'superannuation actuary' which covers both RSE and SMSF actuaries. [Schedule 1, items 29, 33, 35 and 36, subsection 10(1) and item 105, paragraphs 131B(1)(a) and (b)]

6.116 Paragraph 131A(1)(b) omits 'an approved auditor of a superannuation entity that is not a self managed superannuation fund, or to be an actuary', to substitute it with 'an RSE auditor or a superannuation actuary'. This reflects the repeal of the term 'approved auditor'. [Schedule 1, item 100, paragraph 131A(1)(b)]

6.117 Amendments are required to remove references to the term 'approved auditor' which this Bill repeals. Amendments are also required to reflect the new terms inserted in the definitions in subsection 10(1). [Schedule 1, item 102, subsection 131A(2), item 103, subsection 131A(3), item 104, subsection 131A(4), item 106, paragraph 131B(2A)(a), and item 107, paragraph 131B(2A)(b)]

6.118 The section 35B heading is repealed to substitute it with 'Audit of accounts and statements' which removes the previous reference in the heading to all superannuation entities. The heading 'Audit of accounts and statements' is repealed in section 35C, and the section 35D heading is also repealed to remove the reference to SMSFs. [Schedule 1, item 51, section 35C, item 50, section 35B and item 60, section 35D]

6.119 The Bill inserts a specific reference to SMSFs after 'superannuation entity' at subsection 35C(1) which captures the intention of this provision to only apply to SMSFs. Subsection 35C(1) is also amended to remove, ' and the RSE licensee (if any) of the entity'. The note at subsection 35C(1) is also repealed. [Schedule 1, items 52, 54 and 55, subsection 35C(1)]

6.120 Subsection 35C(1A) is repealed to remove the description of what an approved auditor is not as the term 'approved auditor' has been repealed through this Bill. [Schedule 1, item 56, subsection 35C(1A)]

6.121 Subsection 35C(5) is repealed to reflect that the Division now only relates to SMSFs. [Schedule 1, item 58, subsection 35C(5)]

6.122 Subsection 35C(7) is repealed to remove the offence provision for contravening the requirement for auditors to give the report to the trustee of the entity within the prescribed period. [Schedule 1, item 59, subsection 35C(7)]

6.123 The amendments apply from 1 July 2013.

Consequential amendments - Fair Work Commission

6.124 Minor consequential amendments to the Fair Work Act 2009, the SIS Act and the Further MySuper and Transparency Measures Act are necessary to reflect the recent change of Fair Work Australia's title to the Fair Work Commission. [SIS Act - Schedule 1, item 41A, subsection 29U(4) and item 47A, section 29XC . Fair Work Act - Schedule 1, item 12B, subsection 155A(2), item 12C, subsection 155A(3), item 12D, paragraph 155A(3)(a), item 12E, subsection 155A(4), item 12F, subsection 155A(5), item 12G, paragraph 155A(5)(a), item 12H, clause 10 of Schedule 1, item 12J, subclause 10(2) of Schedule 1, item 12K, clause 11 of Schedule 1, item 12L, subclause 11(2) of Schedule 1, item 12M, subclause 11(2) of Schedule 1, item 12N, subclause 11(3) of Schedule 1, item 12P, clause 12 of Schedule 1. Further MySuper and Transparency Measures Act - Schedule 1, items 119A, 119B and 119C, subitems 13(1) and 13(3) of Schedule 4]

6.125 These amendments generally commence with effect from 1 January 2013. The consequential amendment to subsection 29U(4) of the SIS Act commences on Royal Assent.

Additional consequential amendments

6.126 Consequential amendments to the SIS Act and Corporations Act are required following the MySuper Core Provisions Act, the Trustee Obligations and Prudential Standards Act and the Further MySuper and Transparency Measures Act. Many of the consequential amendments relate to APRA's ability to issue prudential standards which was legislated in the Trustee Obligations and Prudential Standards Act.

6.127 As a consequential change resulting from the Future of Financial Advice reforms, subsection 964(3) of the Corporations Act is amended to specify that the reference to 'custodial arrangement' in section 1012IA of the Corporations Act is to include a reference to a direction given by a beneficiary (under paragraph 58(2)(d) of the SIS Act) that involves an acquisition of a particular financial product or a direction to follow an investment strategy of the kind mentioned in section 52B of the SIS Act that will involve an acquisition of a particular financial product. [Schedule 1, item 9, subsection 964(3)]

6.128 The amendment to subsection 964(3) of the Corporations Act will apply from 1 July 2013.

6.129 Subsection 1526(2) of the Corporations Act is also amended to specify that the reference to custodial arrangement is to include a reference to a direction given by a beneficiary. [Schedule 1, item 11, subsection 1526(2)]

6.130 The amendment to subsection 1526(2) of the Corporations Act will commence immediately after the commencement of Schedule 1 to the Trustee Obligations and Prudential Standards Act.

6.131 Subsections 135(3) and (4) are added to enable acting trustees to provide appointment information to APRA. Subsection 135(3) requires former trustees who have been suspended or removed to do all things reasonably practicable to assist the acting trustee in providing the information to APRA, but only when the acting trustee gives the former trustee notice in writing of their obligation. It is common for APRA to have issues with former trustees facilitating the role of acting trustees due to the difficult circumstances often surrounding the removal or suspension of a trustee. Therefore, there is a high risk of the former trustee obstructing, or failing to facilitate, the role of the acting trustee, thus an offence of strict liability is required. [Schedule 1, item 109, subsections 135(3) and (4)]

6.132 The amendments apply from 1 July 2013.

6.133 As a result of APRA's power to grant or refuse authority to an RSE licensee to offer a MySuper product, new types of reviewable decisions exist at subsection 344(12). [Schedule 1, items 116 and 117, subsection 344(12)]

6.134 The new decisions are: a decision of APRA under subsection 242F(2) to refuse to authorise an RSE licensee to operate an APRA regulated superannuation fund as an eligible rollover fund; a decision of APRA under subsection 242J(1) to cancel an authority to operate a regulated superannuation fund as an eligible rollover fund; a decision of APRA under subsection 29T(2) to refuse to authorise an RSE licensee to offer a class of beneficial interest in a regulated superannuation fund as a MySuper product, or a decision of APRA under subsection 29U(1) to cancel an authority to offer a class of beneficial interest in a regulated superannuation fund as a MySuper product.

6.135 These new types of reviewable decisions are all reviewable by any person affected. This is due to the significant impact the decisions have on members of superannuation funds.

6.136 The paragraph (dq) definition of 'reviewable decision' is amended to take into account the repeal of section 35A in this Bill. Paragraph (dq) now relates to a reviewable decision under subsection 35A(3) instead of 35A(2). [Schedule 1, item 32, subsection 10(1)]

6.137 The treatment of the reviewable decisions at paragraphs 10(1)(doa) and (dob) as being reviewable by any affected party will commence from the day after Royal Assent. These decisions relate to authorising and cancelling MySuper authorisations. [Schedule 1, item 116, subsection 344(12)] .

6.138 The treatment of reviewable decisions at paragraph 10(1)(ua) and (ub) as being reviewable by any affected party will commence immediately after the commencement of Schedule 7 (which includes new types of reviewable decisions) to the Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Act 2012 . These decisions relate to refusing to authorise, and cancelling authorisation for an RSE licensee to operate a regulated superannuation fund as an eligible roll over fund. [Schedule 1, item 117, subsection 344(12)]

6.139 Sections 389 and 390 are amended to enable regulations to be made dealing with transitional, saving and application matters related to amendments made by the Superannuation Legislation Amendment (Service Providers and Other Governance Measures) Bill 2012. [Schedule 1, item 118, paragraph 389(d) and item 119, paragraph 390(d)]

Amendments to the Superannuation Legislation Amendment (MySuper Core Provisions) Act 2012

6.140 An application provision is inserted into the MySuper Core Provisions Act to ensure that APRA can be satisfied, in authorising a MySuper product, that the trustee is likely to satisfy the enhanced trustee obligations, despite those obligations not taking effect until 1 July 2013. [Schedule 1, item 120, item 11A of Part 2 of Schedule 1 to the MySuper Core Provisions Act]

6.141 This change will commence the day this Act receives Royal Assent.

6.142 References to section 29WA are updated to include references to section 29WB which is inserted by this Bill. [Schedule 1, item 121, subitem 12(3), item 122, paragraph 12(5)(b) and item 123, item 13 of Schedule 1 to the MySuper Core Provisions Act]

6.143 These changes will apply from the day after Royal Assent.